While old-fashioned defined-benefit pensions are still going the way of the dodo bird, employers are increasingly motivated to help employees with secure retirement planning, says Phil Waldeck, senior vice president, pension risk transfer solutions for Prudential.
Many employers surveyed recently by Prudential think that workers are going to have to work longer because they can't afford to retire. About 41 percent are concerned that this trend will drive up company costs and are looking for ways to manage that increase.
"An unsettled retirement future is distracting for employees," Waldeck says, "so the good news is that more employers are increasing their contributions and using auto-enrollment and packaged investment strategies to provide growth and protection against downturns."
According to Waldeck and Prudential, these workforce trends might affect you as an employee:
- Freezes on old-fashioned defined benefit pension plans in which current employees are participating -- about 44 percent of companies have either done this or are very likely to do it.
- An offer to buy out existing old-fashioned defined benefit pension plans -- that current and former employees haven't yet started to collect -- and transfer them seamlessly to an insurance company-held annuity. About 53 percent say they have already done this or are likely to do it in the next two years.
- Automatic enrollment of new and non-participating employees in 401(k) or similar plans, along with escalating the percentage of salary that employees contribute to their 401(k)s or other tax-advantaged retirement plans. Auto-enrolled employees can opt out -- but many people don't.
- The addition of more low-cost, managed investment alternatives in 401(k)s, such as target-date and stable-value funds -- with contributions from auto-enrolled employees directed in them.
- The ability to buy a lifetime income annuity within a 401(k) to provide retiring employees with some guaranteed income.
- The replacement of some company chosen and paid-for benefits with voluntary benefits that employees pay for themselves via payroll deduction. These include short and long-term disability, life insurance and other forms of protection. A minority of employers -- about 28 percent -- are considering switching employees and/or retirees to private health insurance exchanges instead of contracting directly with insurers.
Some of these changes will improve your retirement security -- and some may not. "It's all a balancing act," Waldeck says.